Michigan Retirement likes the sound of its Concord Music stake

The new song "7 Rings" has been an hit for pop star Ariana Grande. And while that's no surprise given her career success, the fact that the $69.5 billion Michigan Retirement Systems, East Lansing, is making money off of it might be.

The pension fund owns roughly 93% of Beverly Hills, Calif.-based Concord Music, which has a catalog featuring a wide array of artists, including the songs of the musical theater legends Richard Rodgers and Oscar Hammerstein II, according to Jon Braeutigam Michigan deputy treasurer.

Among their many hits, the duo wrote "The Sound of Music," which opened on Broadway in 1959. Sixty years later, 90% of the songwriting royalties from Ms. Grande's new song, which is a spin on the tune "My Favorite Things," goes to Concord, Mr. Braeutigam said.

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Michigan made its first investment into Concord in 2010 with a $25 million commitment through Wood Creek Capital Management, which is now Barings. Its investment now totals $1.1 billion and is worth $1.8 billion, based on a private valuation, Mr. Braeutigam said.

Though Concord is the pension fund's lone music-centric investment, Mr. Braeutigam said it was a good opportunity to diversify the portfolio. "We thought music rights were complementary to the overall portfolio," he said.

The initial $25 million investment was made at a time when CD sales were declining and the future of the music industry was uncertain. But Mr. Braeutigam said the State of Michigan Investment Board, which manages the pension fund, thought the music industry presented a stable investment opportunity. "We think there's nothing wrong with cyclical businesses, but our thesis was it might prove to be less cyclical because the average purchase price is pretty low for people listening to music as opposed to big-ticket items," he said.

With the pension fund's Concord investment, that thesis sounds about right.